Crypto Learning Curve Seems Steep for U.S. Lawmakers

Congressional panel hears from crypto experts to sharpen their wits on the space.

Members of the U.S. House of Representatives’ Financial Services Committee heard from top experts in the cryptocurrency community Wednesday, including one from Coinbase.

While the industry experts delivered a host of valuable information to the panel of House Finance members, it became clear that many of the members had a long way to go before they produced any meaningful legislation related to regulating cryptos or ICOs.

Let’s discuss.

Who took the time to appear?

Attending the hearing were the following crypto experts. They were referred to as witnesses.

  • Peter Van Valkenburgh, Director of Research, Coin Center
  • Dr. Chris Brummer, Professor of Law, Georgetown University Law Center
  • Mike Lempres, Chief Legal and Risk Officer, Coinbase
  • Robert Rosenblum, Partner, Wilson Sonsini Goodrich & Rosati

Biggest obstacles

Most of the Congressional members seemed to want regulations for the space to protect consumers. They seemed to be convinced that the space was a breeding ground for bad actors to take advantage of unsophisticated investors.

Here’s a comment from a member that even trumped Jamie Dimon last year in his bashing of the space:

“Cryptocurrencies are a crock. What social benefit do they provide? Well, they allow a few dozen men in my district to sit in their pajamas on the couch all day and tell their wives they’re going to be millionaires. They help terrorists and criminals move money all around the world. They help tax evaders.” - Representative Brad Sherman, California

He said more, but that’s enough to give you an idea of the train-of-thought that is at play among some U.S. lawmakers who will be charged, in some way, to work out regulation policies.

While most of the Congressional people expressed concerns for tough regulations to protect investors, there was the sentiment from some lawmakers who said that heavy regulations would be like throwing a wet blanket on the space.

Members also struggled with whether cryptos were securities or commodities. This was interesting given that earlier this year, Jay Clayton, the chair of the U.S. Securities and Exchange Commission; and J. Christopher Giancarlo, the chair of the U.S. Commodity Futures Trading Commission, gave a three-hour presentation to members of the Senate Banking, Housing and Urban Affairs Committee. Then, they explained in detail how their agencies played different oversight roles.

No matter, difference was a sticking point the lawmakers struggled to understand.

Who, how, and when

Rosenblum, a partner with Wilson Sonsini Goodrich & Rosati, said he believed that over time, Congress should pass legislation establishing a comprehensive legislative and regulatory system governing Blockchain and cryptocurrency.

He added that, for now, it is too early to know exactly what such a system would look like, but he said he believed there are some principles and approaches that Congress can identify. These can serve as a framework to begin developing that legislation.

“I believe it is too early for Congress and the federal regulators to enact a comprehensive legislative or regulatory scheme governing cryptocurrency. With a few exceptions, widespread efforts to develop tokens and token platforms began in earnest late last spring, so that for the most part we have had less than a year’s experience with tokens and token platforms.”

Coin Center’s Van Valkenburgh told the members that it was important for them to start a conversation about state regulations.

Coinbase’s Mike Lempres agreed, saying there was no need for the creation of a new regulator or a new regulatory scheme because federal regulators already have sufficient authority to regulate this space effectively.

He said there are at least four federal regulatory agencies that can “effectively protect investors and the markets:”

They are the:

  • SEC, which has authority over securities transactions
  • CFTC, which has authority over spot markets in commodities for fraud and market manipulation, and it has full authority over commodity derivatives transactions
  • FinCEN, which has full authority to Know Your Customers (KYC) and Anti Money Laundering (AML) matters; and
  • the Federal Trade Commission (“FTC”) has authority for false advertising and certain consumer protection

While the witnesses agreed that Congress needed to start learning more about the space, law professor Brummer went a bit further. He cautioned the panel that if they don’t craft laws that are a good fit for the crypto space, these business may move to other jurisdictions.